Uber Takes on Cabs, Setting the Stage for a Future Clash

This week Uber announced a test project in Chicago where it will offer taxi booking in addition to its premium black car service. The cab bookings will cost riders the metered rate, plus 20 percent to cover Uber’s fees and driver gratuities. Uber Chicago General Manager Allen Penn said a lot of Uber users were asking for a cab option, which is easier on the wallet, but the company is testing the waters first to see if that interest results in real demand, and whether the numbers make sense. If Uber sees success with this pilot project, however, eventual expansion could lead to stiff competition in this space a few years down the road.

In Europe, there are already a couple different Uber-type services for taxis that are in competition with one another, including UK-based Hailo for London black cab service, and Israeli startup GetTaxi, which has a presence in the UK, Israel and Russia, and is planning deployment in France, Germany, Italy and Spain. Uber has stated it has plans to expand to London, and it currently offers service in Paris. When asked about how adding cab service to its black car business might affect expansion plans, Penn said the company will launch with the service that makes the most sense, depending on the particulars of the location they’re targeting, so we could see these startups clash sooner, rather than later.

“As we look at a new market, we kind of go in eyes wide open, to say ‘what is the best Uber opportunity in this market,'” Penn told BetaKit. “With respect to new markets, we’ll continue to evaluate what the right entry point, from a vehicle type or service and quality level is, and make the best decision.”

The introduction of varying models also makes it possible for Uber to tweak their current offerings in existing markets, too. “With respect to our existing markets, now that we’ve started testing the ability to bring some choice to customers within the Uber product, I think we’ll continue to assess those markets and say ‘is there a place in the market for a parallel Uber service, be it higher-end or lower cost,'” Penn said.

Uber’s Chicago taxi service is definitely cheaper than its hired car and driver offerings, but it does still add 20 percent on top of the metered fare, which could be a lot to some users, depending on how much they usually tip. Penn said that he believes the additional fee is “almost cost-neutral,” based on what Uber has found the average tip to be on cab rides. Also, for drivers, the included gratuity offers consistent, dependable revenue, rather than leaving tips up to passengers, who vary greatly in what they tend to offer on top of a fare.

In terms of facing competition, Allen isn’t worried about Uber’s chances. He thinks the unique combination of features Uber provides offers something competitors don’t, including the convenience of being able to pay via mobile device, location tracking for hired vehicles so users know exactly where they are and when to expect them (which GetTaxi offers but Hailo doesn’t), and a customer relationship that focuses on feedback.

“It’s fair to say that we’ve done our homework about what potential competitive offerings look like, and want to make sure that we’re offering choices, quality and functionality, and on the driver side opportunities that are better than what someone else could come in with,” he said. “That’s why we’re excited to offer choice to our customers with this taxi service. We want Uber users to see that we can meet their needs across a spectrum of demands and value expectations.”

With this move, Uber is clearly signalling that it’s thinking bigger about its role in urban transport, and expanding beyond just black car service. Hired intracity transit service is still relatively low-tech; even using payment cards in cabs is fairly new in most markets. The potential for disruption is therefore high across the industry, but there’s also less room for competition than in other spaces, since drivers who partner with one service might be less inclined, or actually prohibited from working with others, and urban markets that have sufficient volume to make paid vehicle transport a big business aren’t infinite. Expect competition to reach a fever pace in the next five to ten years, as competitors for this market begin to battle for the big territories after building solid home bases in their present markets.